The Dumb Dog.com Blog

Announced 10/12/2011 Congressman Steve Womack (R-AR) and Congresswoman Jackie Speier (D-CA), announced in a Wednesday press conference that they will introduce the bipartisan Marketplace Equity Act (MEA). link

Details of the Bill have not been published yet, but according to Politico it allows States more flexibility than what is proposed in the MainStreet Fairness Act that at minimum would mean higher compliance costs to online retail.

Here are some of the problems as I see it:

~ Tax to be collected based on buyers address, provided the State has online software to figure correct tax.  So this means what?  I need to register with all 45 States and get a Tax ID, pay any fees for permits, then integrate 45 different software programs into my online shopping cart?  That alone is a logistics nightmare.

~ Exemptions for small sellers:   This bill would allow the States to determine exemptions for small sellers. Main Street Fairness allows a Board of Governors to set the minimums (currently @ $500K gross Sales).  Which plan is better?  Deal with one authority, or the 45 individual States with untold number of rules and exemptions. Even so, to get an exemption under MEA, one must file with all 45 States to receive the exemption.  Again, un-necessary paperwork.

Would either bill solve the problem of uncollected Use Tax?  Only partially.  It is confusing to a buyer when one website charges Sales Tax and another doesn’t.  Buyers have no idea a small seller may/may not be exempt, so is the Seller breaking the law or not?  You buy online, you owe Use Tax, and those that don’t?  We then we know who is the true lawbreaker here.  Sadly, States have made little effort to inform the public that such law exists.  Recent studies have shown that 60% of shoppers are unaware that Use Tax law even exists.

A better plan:

As stated before in other blog posts, it would be better if the Merchant Accounts (Visa, MC, PayPal, etc.) collected Use Tax @ Point of Sale and remit directly to the States (States pay related fees).  It’s a win-win for all:
~ States get instant funds

~ No Privacy Issues

~ Paperwork free and reduces costs to merchants

~ System would work for B&Ms as well as online

~ No exemptions needed. Consumers would file for exceptions @ tax time.

Dear Tennessee Governor Haslam,

I read in an article today http://www.commercialappeal.com/news/2011/jul/06/haslam-willing-take-lead-internet-sales-tax/
where you plan to take a leadership role with other Governors in addressing the Internet Sales Tax issue.

To be frank Governor, lawmakers, both at the local and State level have gone out of their way to make Sales Tax laws complicated, cumbersome, and difficult to comply. Sales tax was invented in the 1930s during the Great depression. Yes, States were cash strapped then too. It’s fine to charge Sales Tax for one store with one location, and one tax rate. It was never designed for mail order, or today, the internet. It’s fine for a local community to vote for needed funds to build a new firehouse, a community center, or other specific need for that community. Simpler still is the setup to levy that tax. Again, the stores within that City/County simply add that tax value to the cash register. Those that live within the tax district pay extra tax; those that live outside the city don’t.

Here is the problem with online sales, even with websales from TN sellers to TN buyers: Does the buyer live inside of the city limits, or outside the city? Do they owe 6% Tax, or 5% Tax? Go by the zip code you might say. Sadly, almost all cities in the US have more than one zip code, and most zip codes divide the city/tax district. Yes, a zip+4 address is more accurate, but does TN Dept. of Revenue ave such a database? Does it have software to accurately determine tax rates for TN Buyers? I live in SC, not TN, so I don’t know, but I can tell from the research I have done that States have no such system. They may have PDF files and spreadsheet files to show tax tables, but that is a system that is unacceptable for website shopping carts.

Let me give you a real example: Myrtle Beach SC imposed a 3% tourism tax. Problem is, Myrtle Beach has 3 zip codes and the city divides all 3, so does a buyer with a Myrtle Beach address owe 6% tax or 9%? I called the City Manager, and was informed that on the MB website was an excel spreadsheet where I could figure the correct tax. Sure, that will work for a buyer shopping in their PJs @ 3am. Obviously, local lawmakers were clueless, or forgot about the problems faced from Internet Sales. Worse, in SC, it is illegal to overcharge Sales Tax, so I am unable to charge 9% for all MB Sales.

I’m sure TN faces the same complications. Across the US, there are 8,000 such tax districts. Why should I as a seller even know or care that a tax district 3000 miles away decided to have a voter approved fountain built in town square to celebrate Earth Day?

And then a comment I read in an article the other day:

http://www.bizjournals.com/sanfrancisco/blog/2011/07/amazon-tax-bad-for-big-boxes-bad-for.html

Then consider that in some states a Snickers is considered — and thus taxed as — a candy bar while a Nestle Crunch bar is not considered candy because it contains rice. Some states tax fruit juices differently based on just how much fruit is in the drink, and not all states tax clothing.

Clearly, there needs to be commonality in tax law, and I applaud SSUTA for making that effort. Still, even they do not address the 8000 tax districts, none of which are defined by zip code.

Here is another problem. Assume you succeed with Congressional action that addresses Quill v ND and online is required to collect out-of-state Sales/Use tax. Lawmakers will see the burden placed on small business and declare minimums of gross revenue before tax must be collected. How fair is that to consumers? Some websites collect tax, others don’t. Are the sellers dodging the law? Cheating? True or not, the buyer is still obligated to pay Use Tax. Either way, it leaves a lot of tax fruit hanging on the tree.

Want 100% compliance? I have an easy solution and it’s a win-win for all. Visit my blog for more details www.thedumbdog.com/blog
It would take minimal Federal Law to enact.
Have the Merchant Accounts (Visa, MC, AMEX, PayPal, Authorize.net, Google checkout, Amazon Payments) collect the tax @ POS (Point of Sale) and remit directly to the States (States pay related fees).
~ States get instant funds.
~ No privacy issues
~ Huge savings in collection costs ($0.02/transaction for a MA v $0.75 or more for small sellers)
~ $$ only transfers once v 2 or more times for online to collect then remit.
~ States collect from ALL buyers, no minimum seller thresholds required.
~ System would work for B&Ms as well as online.
~ Minimal shopping cart integrated coding required.

Yes I know, lawmakers hate the word simple, but this is the best way to collect Use Tax that buyers now are obligated to pay … and I think minimal Federal law would be required to make it all come together. Maybe you can suggest to TN lawmakers to explore the possibility to have the MAs collect/remit in your State. I would make news, and hopefully open the doors to precedence that would still allow Quill v ND to remain intact. Not being a lawyer, I can’t address that issue. Maybe you can.

Want B&Ms to get on board and support the idea? Consider this: Take an average Wal-Mart that does $10M gross sales per Qtr. @ 6% Sales tax, that’s $600K. If a merchant account gets 2% fees to xfer money, out of that $600K, that Wal Mart pays $12K in fees …. but that $$ does NOT belong to Wal-Mart! It belongs to the State DOR! Yet another out of pocket expense B&Ms (and online retail) we must endure. LOL. (Laughing Out Loud) Who said life was fair, but lawmakers could help retail by lifting this burden we endure.

King for a day? I would only request online pay a State’s base rate. Simple is what is needed. Still, as an alternative, allowing the MAs to collect tax is the best cost efficient method to get the job done.

Thank you for taking the time to read my letter. I have been following the issue and offer alternative views in my blog. Feel free to take the time to read/view/comment. http://www.thedumbdog.com/blog I look forward to working with you to resolve this issue.

So much has been written about new tax laws States are imposing to gain revenue from buyers who fail to voluntarily pay Use Tax. The primary argument bloggers and syndicated columists use is that ‘It Levels The Paying Field’ between Online Retail and a Bricks and Mortar [B&M].
Lets dispel that MYTH
The term was invented by Legislators, primarily because they see a missing piece of the tax pie, brought on by the lack of enforcement of existing Use Tax law. You buy something online, the buyer is obligated to pay that States’ Sales Tax [Use Tax] on the product. It’s a line item on your yearly tax form that most consumers eith ignore or lie about when filling out the form.
What about this ‘Level Playing Field’ argument? Lets look at the facts and advantages/disadvantages of online retail vs. B&M:
~ A B&M does not share the same tax load on a community that online retail has. A B&M uses more police, fire and sanitation services than online. Should online be required to subsidize a B&M’s heavier tax burden?
~ What law prevents a B&M from selling online?
~ Both online and a B&M collect Sales Tax for in-state sales.
~ You can’t touch or feel a product online, and answers to questions can take days. Not so in a B&M store, and that sales person’s pitch often is the dealmaker for you to leave the store with product in hand. … Advantage: the B&M.
~ For heavy items, the shipping often offsets any cost savings online retail may offer.
~ For lighter items, even with Sales Tax included, online can still be cheaper, because they do not have the high overhead a B&M pays. Making / adding Sales Tax to an online purchase will not match prices Advantage: Online
~ What about the 5 States in the US that have no Sales tax? How are the pundits arguing that advantage/disadvantage, if there is one?
~ Shopping online is GREEN. Less travel, no standing in line, shop and buy @ 3AM in your PJs, and the delivery services still travel XX miles per day, whether delivering to that B&M with resellable goods, or to your front door. By buying GREEN, that alone should deserve a tax (carbon) credit, shouldn’t it?
Should States collect Uales Tax? According to existing law, yes, of course! The consumer is obligated to obey the law and remit lawful tax. That is a burden of the consumer, not the online seller. If States wish to ‘level the playing field’, they need to enforce existing law first before inventing new, bad, unconstitutional law like this affiliate tax passed in NY, RI, NC, and CO.
Unenforceable they [legislators] say? A) as an online retailer, that’s not my probem. B) There is a solution. They could get the Merchant Accounts (Visa, MC, PayPal) to collect the Use Tax at the point of sale, then remit the Use Tax directly to the State DOR, but that plan is too simple for Legislators to understand.

The US Congress Judiciary Committe will hold hearings on Fe. 4 2010 concerting the role of Congress in defining the role of Defining Nexus. Here is the link to the Committee http://judiciary.house.gov/hearings/hear_100204.html As an online retailer, I urge other sellers to write to the parties involved an express your views.

~ The ‘Amazon Tax’ law imposed by the State of New York is unconstitutional, and violates States Rights. The definition of nexus in that law is an invention, not reality.
~ If the Streamlined Tax folks had their way, businesses would be forced to collect and remit sales tax from over 8,000 tax districts which are not defined by zip code. How would YOU like to file quarterly tax reports for 45 States, be subject to tax audits, and need to be knowledgeable for what is eligable for Sales Tax and what is not?
~ Small business cannot afford to do the paperwork, either by hiring extra staff, soliciting a 3p provider, or cover the extra costs involved. This is legislation that will put small business out of business.
~ States have existing laws on the books to collect Sales Tax now It’s called Use Tax. Make that mandatory, rather than voluntary as it is now.
~ Incorporate the Merchant Accounts (Visa, MC, PayPal) to collect Use Tax and remit directly to the States. States would pay the related fees, get instant funds, and it would reduce paperwork for all involved.

Lastly, GET INVOLVED. We as a country need to let our legislators know that proposed law is too much of a burden on small business.